Critical illness cover - the insurance policy with disappointment built in

Critical illness cover has become so complicated that it's impossible for consumers to ever understand quite what they're buying.

As a nation, we’ve never been very good at preparing ourselves for the worst. Most people couldn’t make their finances add up for any more than three months if they were unable to work. While lots of families don’t have enough (or even any) life insurance to protect them if the breadwinner in their clan were to fall under a bus.

Some people claim this is a cultural problem. Brits have a head in the sand approach to money and don’t like to face up to reality until it walks up to them and slaps them in the face.

Perhaps there’s a grain of truth in that. But if you ask me, the insurance industry needs to take much of blame as well. Protection products are often mind bogglingly complicated and are designed with disappointment built in for a small but significant group of customers. They can be expensive too – and there are far too many bad news stories of claims that went unpaid leaving customers distraught.

What's the point of critical illness cover?

Recently, I’ve been spending more time than I’d like to admit rewriting a critical illness policy – a task that has left me wondering what the point of this protection really is.

Critical illness cover is designed to pay out a lump sum if you’re diagnosed with a life changing illness - and you can see why people buy it. You find out you’ve got cancer – and don’t know what that’s going to mean for you – but can take some consolation that a cheque for a few tens of thousands of pounds will soon be winging its way to you.

But objectively, people who become long-term sick don’t really need a lottery style payout. What they really need is some income to pay their bills while they can’t work.

The other problem with these policies is that consumers have absolutely no hope of understanding what medical conditions are covered and which ones aren’t until they come to make a claim.

Disappointment built in

As with all insurance policies, there are limits to what’s included. But these boundaries can often feel arbitrary.

Some of the conditions that you’ll be protected for are truly debilitating. A bad stroke or a serious accident could leave you unable to work for the rest of your life.

But at the other end of the scale, some policies will also pay out for more chronic illnesses, which can vary enormously in how they manifest themselves. For example, some critical illness policies will pay out for Multiple Sclerosis, or Crohn’s Disease – horrible illnesses which tend to ebb and flow in terms of severity throughout people’s lives.

If you get diagnosed with something like Crohn’s or MS, I’m not sure that a lump sum is really what you need. A nice consolation for your diagnosis, maybe – but surely that’s not what protection products are designed to be.

And then of course there’s what’s not covered. If your policy is less comprehensive, you may find that conditions like MS or Crohn’s aren’t covered. When you call up your insurer to tell them you’ve got a serious illness, you find yourself being sent away with a pat on the back, being told that unfortunately, as traumatic as the last few weeks have been, your illness isn’t debilitating enough.

The health lottery

So it really can end up feeling like a health lottery. When they buy their policy, 99% of the population won’t have any understanding of the vast array of illnesses which could await them down the line. There’s no chance of them understanding their insurer’s policy document, as the definitions are riddled with medical jargon and completely incomprehensible to the average consumer.

So you have to take it as read that you’re buying a policy that will cover you when the worst happens. And when it does, you turn your ticket into your insurer and ask them if you got all six numbers on the health lottery. Most of the time, in fairness, the answer will be yes. But in a small but significant minority of cases, it will be no.

There’s no hope of getting customers to understand what they’re covered for before they buy. The medical definitions are written for doctors, and talk in detail about the levels of certain tests that need to be met for a claim to be paid. For example, all critical illness policies will cover heart attacks – but generally only if the level of an enzyme called Troponin T is greater than 200 nanograms per litre.

I’ll never forget meeting one angry critical illness policyholder who’d had a heart attack but was told it wasn’t serious enough, as her Troponin reading didn’t meet the required level.

Insurers and monsters

Understandably, customers who are turned away in that kind of scenario are disgusted by the insurance industry. Having just suffered the worst health scare in their life – they’re told that it’s not bad enough. If they’d had a benign brain tumour, however, that would have been ok.

This is what I mean by disappointment being built in. You can’t know what condition you’ll get. But if you get something life changing, and it’s not on the list, you feel let down in the worst possible way.

There’s a similar disappointment built into life insurance – where insurers will pay out early if you’re diagnosed with a terminal illness. But the payout will only be made if you’ve got less than 12 months to live. So if the doctor goes for 15 or 18 months, then the insurer won’t pay. To the customer, this feels brutal and arbitrary.

Instead of buying critical illness cover, most people would be much better off with income protection – which is assessed based on whether or not you can work. If you can’t, it replaces your income. When you can work again, it stops. That makes so much more sense than a product that pays out a lot of money but only if you win (or lose, depending on your point of view) the health lottery.

If you’re hell bent on having critical illness cover, at least make sure you’ve got income protection cover first.